If you own shares in China Maple Leaf Educational Systems Limited (HKG:1317) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks on the market.
Some stocks are more sensitive to general market forces than others. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that ‘Volatility is far from synonymous with risk’, beta is still a useful factor to consider. To make good use of it you must first know that the beta of the overall market is one. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
What does 1317’s beta value mean to investors?
Given that it has a beta of 1.23, we can surmise that the China Maple Leaf Educational Systems share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that China Maple Leaf Educational Systems shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it’s also important to consider whether China Maple Leaf Educational Systems is growing earnings and revenue. You can take a look for yourself, below.
How does 1317’s size impact its beta?
China Maple Leaf Educational Systems is a small cap stock with a market capitalisation of HK$12.21b. Most companies this size are actively traded. It has a relatively high beta, which is not unusual among small-cap stocks. Because it takes less capital to move the share price of a smaller company, actively traded small-cap stocks often have a higher beta that a similar large-cap stock.
What this means for you:
Since China Maple Leaf Educational Systems tends to moves up when the market is going up, and down when it’s going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether 1317 is a good investment for you, we also need to consider important company-specific fundamentals such as China Maple Leaf Educational Systems’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for 1317’s future growth? Take a look at our free research report of analyst consensus for 1317’s outlook.
- Past Track Record: Has 1317 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 1317’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how 1317 measures up against other companies on valuation. You could start with this free list of prospective options.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.